Biology and risk taking

Cleaning more book notes out of my Google Drive files…

Hour Between Dog and Wolf is a useful complement to Misbehaving and Thinking Fast and Slow. The author started out as a derivatives trader, then changed their career to neuroscience bringing unique personal perspective to the well worn path of studying how humans can act irrationality in financial markets and life.

Thinking Fast and Slow is a somewhat pendantic and rambling summary of groundbreaking research.  Misbehaving is a humorous summary of the development of behavioral economics.  Hour Between Dog and Wolf is a more personal story, with emphasis on dealing with risk and stress.  All three are worth reading.

 

Written on the temple of Delphi was the maxim “know thyself” and today that increasingly knowing your biochemistry.

Brain-Body Connection

Probably the most valuable part of the book is a discussion of mind-body connection in the context of dealing with risk.

Category divide between body and mind, runs deep in western philosophy.  This idea:

originated with Pythagoras, who needed the idea of immortal soul for his doctrine of reincarnation, but the idea of a mind-body split awas cast in its most durable form by Plato, who claimed that within our decaying flesh there flickers a spark of divinity, being an eternal and rational soul. The idea was subsequently taken up by St. Paul and enthroned as Christian dogma. It was a very edict also enthroned as a philosophical conundrum later known as the mind-body problem; and physicists such as Rene Descartes, a devout Catholic and committed scientist, wrestled with the problem of how this disembodied mind could interact with the physical body, eventually coming up with the memorable image of a ghost in a machine, watching and giving orders.

Today Platonic dualism as the doctrine is called is widely disputed within philosophy and mostly ignored in neuroscience, but there is one unlikely place where a vision of the rational mind and pure as anything contemplated by Plato or Descartes still lingers- and that is in economics.

Author argues that this platonic dualism has impaired ability to understand financial markets. Need to study how people react to volatile markets. For too long people have ignored brain body feedback.

Book goes on to discuss crazy behavior of traders, bankers, and the idiotic decision they made. Not original, but well worth reading, and the author puts a unique spin on it.

A couple other related ideas:

  • Neocortex gave us reading, writing philosophy. Making tools throwing spears etc.
  • Another brain region outgrew neocortex- cerebellum like a separate brain acting as operating system for rest of brain.

We may be gifted with considerable rational powers, but to solve a problem with them we must first be able to narrow down the potentially limitless amount of information, options and consequences. We face a tricky problem of limiting our search and to solve it we rely on emotions and gut feelings.

See also- Cialdini’s Law of Data Smog.

“Somatic Market Hypothesis”

Each event we store in memory comes bookmarked with the bodily sensations…. Called somatic markets we felt at time of living through it at our first time, and these help us decide what to do when we find ourselves in similar situations. These bookmarkers basically help us sort through options. Somatic markers help rational brain function.

Moving towards stress adaptation

Some scientists study stress and response too it. Chronic stress leads to illness, learned helplessness. Short lived bursts of stress, in contrast, cause people to emerge hardier. Can be verified with lab rats. Well known for anyone building muscle mass or aerobic capacity.

Humans are built to move, so we should. The more research emerges on physical exercise, the more we find that its benefits extend far beyond our muscles and cardiovascular systems. Exercise expands the productive capacity of our amine-producing cells, helping to inoculate us against anxiety, stress, depression and learned helplessness.It also floods our brains with what are called growth factors, and these keep existing neurons young and new neurons growing – some scientists call these growth factor brain fertilizer- so our brains are strengthened against stress and aging. A well -designed regime of physical exercise can be a boot camp for the brain.

Fatigue and focus

I once had a coach who told me “rest is a part of training. ”  Similarly, one of the top performing hedge fund managers I know sleeps 9 hours a night, and is obsessed with importance of rest. 

A recently developed model in neurosciences provides an alternative explanation of fatigue. According to this model, fatigue should be understood as a signal our body and brain use to inform us that than expected return from our current activity has dropped below its metabolic cost. The brain quietly searches for the optimal allocation of attentional and metabolic resources and fatigue is one way it communicates its results. If we are engaged in some form of search and have not turned up any results, our brain, through the languages o fatigue and distractibility tells us we are wasting our time and encourages us to look elsewhere. The cure for fatigues, according to this account, is not rest, it is a fresh task. Support form this idea comes from data showing that overtime work in itself does not in itself lead to work-related illness such as hypertension and heart disease, these occur mainly if workers have no control over allocation of their attention. Applying such a model could benefit workers and management alike, for more flexibility in choosing what to work on, and when, could reduce worker fatigues, while management might be delighted to find that workers may be just as refreshed by a new assignment as by a vacation. This model of fatigue provides a good example of how understanding a bodily signal can alter the way we deal with it.

Only complaint about Hour Between Dog and Wolf  is it probably could have been a long form article- I suspect the book publisher wanted to fill it out. Still worth taking a look though. Hour Between Dog and Wolf provides a useful framework for anyone who has a high stakes job that requires stamina.

See also:

Askeladden Capital on Sleep/Rest/Chronotypes Mental Model 

Askeladden Capital’s review of Misbehaving

 

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